Factor Fleet Administration preps for a future with EVs and termites

Jay Forbes, President and CEO of Element Fleet Management, will address investors at the company’s first-ever Investor Day on November 29, 2022.handouts

Who doesn’t care about a possible recession? termites.

Jay Forbes, Chief Executive Officer of Element Fleet Management Corp., EFN-T, points to wood-eating insects and other household pests to illustrate the resilience of the Toronto-based company’s business and the growth strategy that has transformed it into a global leader .

Last month, Element announced a massive new contract that will add 16,500 trucks and vans from Rentokil Terminix, the North American arm of the world’s largest pest control company, to the existing fleet of 1.5 million vehicles it serves for corporate customers. Mr Forbes, a turnaround specialist who was appointed CEO four years ago, said the five-year deal with Rentokil typifies the “sticky” relationships Element builds with customers, offering services that start with financing and maintenance and then move on extend to driver training, paying highway tolls and purchasing fuel.

“Our customers rely on their vehicles and know that once these vehicles reach their useful life, typically three to four years old, their maintenance costs skyrocket and this dynamic is constant,” Mr. Forbes said in an interview. He said previous economic downturns have shown that fleet maintenance is an essential service for businesses, with consistent revenue over a business cycle.

Across North America, businesses and governments spend $8 billion annually on their vehicles. External suppliers such as Element capture 45 percent of the business and are constantly expanding their share. Element’s data shows that outsourcing reduces vehicle costs by up to 20 percent, potential savings that become even more compelling in tough times.

As a result, Element forecasts revenue growth of 6 to 9 percent while profit will increase by 7 to 12 percent in 2023, a year in which economic growth is generally expected to be weak. In a recent report, Barclays Capital analyst John Aiken said the company’s shares are undervalued by investors. “We suspect a lot of this has to do with concerns about the possibility of a recession in the coming months,” Mr Aiken said. “Similar to Element’s experience during the pandemic, this should serve to only limit, not eliminate, Element’s growth.”

The deal with Rentokil also underscored Element’s ability to win customers from competitors. In a recent investor presentation, Mr Forbes uploaded a slide showing that last year – prior to the Rentokil deal – the company welcomed 77 new customers with 33,100 vehicles, and named the competitors who lost business. The majority were companies struggling with some form of turmoil at corporate headquarters.

Acquisitions have reshaped the fleet management industry over the past two years, as several companies have merged to build scale or faced financial difficulties related to pandemics – rental giant Hertz, for example, sold its business in 2021. Also, private equity fund Apollo Global Management Inc , which invested in three of Element’s biggest competitors, acquired Wheels and Donlen’s parent company last year and merged it with LeasePlan USA in December to create a company that serves 800,000 vehicles.

Element stayed away from the deal-making. Mr Forbes said his team reviewed numerous potential acquisitions, but always decided their time was better spent on organic growth opportunities. Not only is Element the largest fleet manager in Canada, the US and Mexico, but it also dominates the sector in Australia and New Zealand. Mr Forbes said, “There are many opportunities for us to steal market share as competitors integrate cultures, processes and systems and take a potentially painful path.”

Over the past year, Element has acquired customers from Wheels Donlen and LeasePlan USA. Analysts are predicting that Element could generate $190 million in revenue next year by winning customers — the company is forecasting revenue of $1.14 billion to $1.17 billion in 2023. “As an industry leader, Element is better positioned to capture a disproportionate percentage of existing market share by leveraging its competitive advantages and capitalizing on market disruptions,” said Mr. Aiken.

Once Element has landed a customer, they stick around. The company has a customer retention rate of 99 percent, a significant improvement from the relatively high revenue element recorded before Mr. Forbes joined in 2018. The former CEO of Manitoba Telecom Services – acquired by BCE Inc. – Teranet Inc. and Aliant Inc. made customer service a priority at Element, a company that grew out of companies spun off from General Electric Inc. in 2015.

“Our employee engagement went from the bottom quartile for our industry to the top quartile,” said Mr. Forbes. Part of the shift reflected Element’s change in compensation system to increase pay-for-performance and increased automation of customer service systems. Element employees are now consistently winning more business from existing customers. Analysts predict this trend will boost sales by $240 million over the next year.

The transition to electric vehicles is also expected to boost Element’s financial results as the company wins new business by advising customers on the transition. By 2030, Element expects 40 to 60 percent of its fleet to be battery-powered, taking to the streets every day and playing an integral role in businesses. Including getting rid of termites.